Why US businesses will be wishing Trump had stayed in the TPP

Koichi Hamada says the Trans-Pacific Partnership looks ready to power ahead without the US, with Japan keen to lead, and American businesses will rue being robbed of the chance to enter new markets

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Japanese Prime Minister Shinzo Abe (right) greets New Zealand counterpart Bill English ahead of a meeting in Tokyo on May 17. Japan and New Zealand have pledged to seek an agreement with other TPP signatories to move the mega-regional trade deal forward. Photo: Kyodo

Published: 12:14pm, 30 Jun 2017Updated: 12:14pm, 30 Jun 2017

When Donald Trump, in one of his first acts as president, announced that the United States would withdraw from the Trans-Pacific Partnership, many assumed that the mega-regional trade deal was dead. But such assumptions may have been premature.

The TPP was originally envisioned as a rules-based economic area spanning the Pacific and comprising 12 member countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – which collectively account for about 40 per cent of the world economy.

The negotiations, which lasted five years, were undertaken with great care and diligence. In Japan’s case, for example, the negotiators, headed by Akira Amari, then the minister of state for economic and fiscal policy, worked day and night to assuage opposition by various sectors of the domestic economy (say, rice growers) and to secure favourable outcomes.

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Trump’s announcement in January, which came just as the deal was set to be ratified, certainly shook the endeavour to its core. But many relevant players, eager to prevent the TPP from crumbling, soon began to discuss moving forward without the US.

Watch: Trump signs off on US withdrawal from the TPP

By May, Japanese Prime Minister Shinzo Abe was declaring that, though he still hoped for America’s return to the TPP, Japan was willing to take the lead in bringing the deal to fruition. Soon after, Japan and New Zealand announced that they would seek an agreement with other signatories by November to move the TPP forward. If they succeed, TPP signatories will benefit substantially – and the US may well find that it has missed a massive opportunity.

Trans-Pacific Partnership may yet live on, without Trump’s America

In general, there are two distinct approaches to achieving freer trade. First, there is the global model, embodied by the World Trade Organisation. The chief advantage of this approach is its scale: it ensures that a huge share of the world economy is interconnected, with most of its constitutive economies adhering to a common set of rules and submitting to a dispute-resolution mechanism that enables the enforcement of those rules.

But scale may also be the WTO’s chief weakness, given the difficulty of getting so many countries to agree to a single set of rules. Indeed, the negotiation process is often painstaking and time-consuming – even more so than that leading to the TPP.

In Trump’s view, bilateral agreements put the US in a stronger bargaining position

That is a key reason why WTO negotiations lost momentum during the Doha Round of trade talks, which began in 2001 and petered out without an agreement.

The second approach to achieving freer trade – bilateral agreements – mitigates the challenge of scale. With only two (or a few) countries involved, negotiations are far more straightforward and often take less time.